Monarch prays for lifeline as CAA considers licence extension

The future of Monarch, Britain’s fifth-biggest airline, is hanging by a thread this weekend as it holds emergency talks with regulators about a temporary extension to its tour operator’s licence.

Sky News has learnt that the Civil Aviation Authority (CAA) is weighing whether to hand Monarch a temporary extension to its Air Travel Organiser’s Licence (ATOL) for the third time in four years.

Sources said that without such an extension, Monarch’s travel subsidiary was likely to be placed into administration within days – leaving 100,000 of its customers facing uncertainty about their journey back to the UK.

One insider said that a temporary extension was the most likely outcome as of Saturday afternoon, but cautioned that the situation was fast-moving and that the CAA could decide to reject Monarch’s application altogether.

KPMG, which has been working with Monarch on exploring sale or partnership options for its troubled short-haul network, has been lined up to act as the administrator.

That would leave thousands of British holidaymakers facing an anxious wait for news about whether they would be flown home by Monarch or whether they would need to rely on contingency plans being drawn up by the CAA.

Image:With headquarters at Luton Airport, Monarch employs over 2,500 people

Sources said the regulator had been engaged in an exercise in recent weeks to source aircraft from around the world in case Monarch’s finances deteriorated, but had faced a challenge posed by US officials’ need for spare planes to evacuate people from the hurricane-hit Caribbean.

It was unclear on Saturday how long a CAA licence extension might be granted for, or whether the latest concerns about Monarch’s future would have a contagion effect on the company, leading directors to appoint insolvency practitioners to its main airline operations.

Analysts also pointed out that it was unclear whether a temporary extension would do anything other than act as a stay of execution given the uncertainty about Monarch’s finances.

More than 2,500 people work for Monarch, with about 800 employed by its engineering business – a division which is likely to be able to continue trading under another owner.

The company is expected to fly more than six million passengers this year from airports including London Gatwick, Birmingham, Leeds and Manchester, as well as its base at Luton Airport.

Within the last week, Monarch has landed bids for parts of its struggling short-haul business from rivals including easyJet and WizzAir as it has sought to extricate itself from a bitter industry price war.

Last year, Monarch required a 12-day extension before its ATOL was renewed by the CAA, with controlling shareholder Greybull Capital orchestrating a £165m rescue package.

Boeing also contributed to that deal by allowing Monarch to enter into sale-and-leaseback arrangements for a fleet of new planes, which are expected to come into service from next spring.

The turmoil in the aviation industry has caused a brutal downturn in Monarch’s performance, with currency weakness and a string of terrorist attacks in Europe contributing to its troubles.

Insiders said that Monarch still had tens of millions of pounds on its balance sheet, which could mean that the CAA would allow it to be wound down solvently, by flying customers home from their destinations but not taking them abroad from the UK.

However, the holidaymakers who have booked with Monarch’s travel business would be covered by the ATOL, meaning that creditors could challenge whether this is an appropriate use of the money that could be returned to them.

If it does collapse, Monarch’s assets would be targeted by rivals such as easyJet, although the shares of the company would be worthless.

The part of Monarch’s business which requires an ATOL represents only about 5% of the group’s revenues, but sources confirmed this weekend that the likely loss of confidence among airport and payment partners would trigger the downfall of the wider business.

A CAA spokesman said: “The ATOL renewal process is on-going and the CAA will conclude the processing of applications from approximately 1300 ATOL holders in the next 24 hours.

“In certain circumstances this could require a temporary extension to complete this process.

“In line with our usual practice, we will not comment on the specifics of any ATOL holder’s application until such time as the process has reached a resolution.

“However, we can confirm that ATOL protection will remain available for eligible holiday bookings made with Monarch on Sunday.

“The CAA will provide a daily update with regard to the protection that is available to Monarch’s customers.”

Monarch’s most recent financial statements revealed accounting losses for the year to last October of £317m, although much of this related to aircraft leasing contracts.

Monarch’s chief executive, Andrew Swaffield, reacted angrily last month to a suggestion made by Michael O’Leary, Ryanair’s combative boss, that the British airline would struggle to make it through the winter.